Pension Trust Fund for Operating Engineers v. Mortgage Asset Securitization Transactions, Inc.
2013 U.S. App. LEXIS 19166
3rd Cir.2013Background
- Mortgage-backed Securities: MASTR Certificates 2007-3 were issued in 2007 with UBS Real Estate Securities, MASTR, and UBS Securities involved in underwriting and placement to investors including the Operating Engineers.
- Offering Documents guaranteed underwriting standards, loan-to-value and debt-to-income ratios, and no material pending proceedings against sponsor/depositor; Moody’s and S&P rated the Certificates AAA.
- Countrywide and IndyMac originated the vast majority of loans; later disclosures showed widespread underwriting defects and downgrades, reducing distributions and market value.
- Ratings downgrades occurred in 2009; by 2010 a large portion of loans were delinquent or foreclosed, harming Certificate values and investor recoveries.
- Original Complaint filed February 22, 2010 alleging Sections 11, 12(a)(2), 15; Amended Complaint (Dec 2010) added UBS-related defendants and asserted Section 13 limitations compliance; Second Amended Complaint (2011) added limitations-pleading theory.
- District Court dismissed Amended Complaint without prejudice for failure to plead Section 13 compliance; later dismissed Second Amended Complaint with prejudice under an inquiry notice standard. Appellate review addresses timeliness and pleadings under Section 13.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Must a Securities Act plaintiff plead Section 13 compliance? | Operating Engineers contend pleadings should not require Section 13 compliance. | UBS argues need to plead timing and compliance; abstaining from such pleading is improper. | A Securities Act plaintiff need not plead Section 13 compliance. |
| Should discovery standard apply to Section 13 timeliness? | Discovery standard should apply as in Merck. | Inquiry notice standard should apply or is controlling. | Discovery standard governs Section 13 timeliness. |
| Were the Original Complaint claims timely under discovery rules? | Storm warnings and generalized information could toll timely discovery earlier. | Storm warnings insufficiently tied to UBS/Certificates; timely under discovery rules. | Original Complaint was untimely under discovery standard. |
| Did the district court err in applying an inquiry notice framework to original claims after Merck? | Inquiry notice should inform but not govern discovery-based accrual. | Inquiry notice remains applicable for certain aspects; discovery rule supersedes in this context. | Merck requires discovery rule; inquiry notice may assist but does not govern accrual. |
Key Cases Cited
- Benak v. Alliance Capital Mgmt. L.P., 435 F.3d 396 (3d Cir. 2006) (treats statute of limitations as affirmative defense; pleading not required)
- In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256 (3d Cir. 2006) (sections 11/12/15 timeliness tied to statute; standard discussed)
- Merck & Co. Sec. Derivative & ERISA Litig., 543 F.3d 150 (3d Cir. 2008) (adopts discovery rule for Exchange Act; discussed applicability to Securities Act claims)
- Tregenza v. Great Am. Commc’ns Co., 12 F.3d 717 (7th Cir. 1993) (advocates against rigid 'statutory claims vs common law' rationale; later abrogated in part)
- La Grasta v. First Union Sec., Inc., 358 F.3d 840 (11th Cir. 2004) (adopts discovery-based approach under certain circumstances)
- Johnson v. Aljian, 490 F.3d 778 (9th Cir. 2007) (recognizes discovery rule applied to Securities Act context)
- MBIA, Inc. v. City of New York, 637 F.3d 169 (2d Cir. 2011) (discusses scope of discovery and particularity in context of discovery rule)
- City of Pontiac Gen. Emps. Ret. Sys. v. MBIA, Inc., 637 F.3d 169 (2d Cir. 2011) (discussion of discovery standard vs inquiry notice in securities claims)